In the summer of 1977, yields on short-term U.S. Treasury bills rose above the maximum interest rates that commercial banks and most thrift institutions are legally permitted to pay on passbook savings deposits. By the end of that year, interest rates on U.S. Treasury securities had risen above ceiling interest rates on time deposits with longer maturities. In the past, when market interest rates have risen above legal ceiling rates on time and savings deposits by similar margins, the growth of these deposits has slowed sharply. This is called disintermediation. In an attempt to reduce the extent of disintermediation, Federal regulators of depository institutions authorized a new category of six-month time deposits called money market certificates (MMCs), which commercial banks, savings and loan associations, and mutual savings banks were permitted to offer after June 1, 1978. This paper analyzes the role of MMCs in preventing disintermediation and the implications of continued growth of deposits through MMCs for expansion of mortgage lending and residential construction activity.